Chips pick up pace; hardware lags

ChrisKraeuter

NEW YORK (CBS.MW) - Chip stocks picked up momentum while hardware stocks clung to the unchanged line on Monday - the first day of a week studded with financial reports from some of the sector's biggest names.

The major indexes all ended Monday lower. With the exception of the Russell 2000, which is trading near an 18-month high, the major indexes are trading near month-and-half lows.

Sam Olesky, founder of Olesky Capital Management in Mill Valley, Calif., said the next couple of weeks will be very important to the market.

"At the moment, the momentum on technology stocks is definitely downward and the relative strength of the indexes is pretty negative," he said. "I think a lot of investors have lost faith in any sort of near-term recovery and are wondering if these companies still have the same great long-term growth prospects they initially thought they had."

He remains confident in the long-term prospects for storage, enterprise networking, enterprise software and contract manufacturers.

"The only good argument for the market to keep declining is that valuations are just too high based on forward earnings estimates, and while that may be true, it still remains to be seen."

He said, generally, he will be looking for some positive surprises and some better color on orders and prospective revenue from technology stocks as a group.

Chips

Semiconductor financial reports began Monday morning with two reports from overseas: Hynix in South Korea and ARM Holdings in the U.K.

Memory chipmaker Hynix Semiconductor said a recovery in prices helped it return to the black for the first time in six quarters. See full story.

Hynix
HXSDY
which is in alliance talks with Micron
MU, +3.05%
also said it was confident of its business prospects in the second half, citing an expected recovery in the global semiconductor demand.

ARM Holdings
ARMHY
a specialist in RISC chips, reported continued strong demand for its chip designs as its first-quarter pre-tax profits topped the consensus target.

Falling chip prices, though, caused royalty revenue to fall 6 percent sequentially. The company had earlier given guidance that such revenues would be flat. See full story.

RISC chips, which stands for reduced instruction set computing, can process several tasks simultaneously.

After Monday's closing bell, Novellus Systems
NVLS
a major maker of deposition equipment for chipmakers, will announce its first-quarter results. Ahead of the announcement, shares rose 3.5 percent to $50.40.

On Feb. 28, the San Jose, Calif.-based company boosted its targets to reflect a loss of 9 cents a share on revenue of $150 million to $160 million and orders of $130 million to $150 million. At the end of January, Novellus has targeted a loss of 10 cents a share on revenue of $150 million with orders of $130 million.

Intel, following court-ordered mediation, agreed to pay Intergraph
INGR, +0.76%
$300 million in order to dismiss a lawsuit filed in Alabama. The two companies also have a patent infringement suit pending in Texas that will proceed to trial. Intergraph provides mapping and design software. Due in part to this ongoing legal dispute, Intergraph has divested its manufacturing and hardware operations.

Elsewhere, Hewlett-Packard
HWP
said a U.S. Attorney's Office and the Securities and Exchange Commission are looking into the shareholder vote held to approve its tie-up with Compaq
CPQSee full story. Compaq and H-P were up nominally. Other PC stocks were unchanged.

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